News sentiment and DeFi coin returns: An empirical analysis

Abstract

This study investigates the influence of news-based sentiment on the returns of Decentralized Finance (DeFi) coins using a sample of 27 coins from January 2017 to March 2022. Our results indicate that news sentiment significantly impacts DeFi returns, with negative sentiment exerting a stronger influence than positive sentiment. Transaction volume and network security also emerge as critical drivers of DeFi coin returns. Smaller coins are more sensitive to news sentiment, showing greater return volatility. The impact of news-based sentiment is more pronounced during weekdays, likely due to reduced participation by institutional investors and trading algorithms. These findings have important implications for investors and policymakers, suggesting multiple pathways for market manipulation under specific conditions. • We investigate the relationship between DeFi coins and news-based sentiment. • Negative sentiment has a greater impact on returns. • Transaction volume and network security drive returns. • Smaller DeFi coins are more susceptible to news sentiment and greater return volatility. • DeFi returns’ sensitivity to news-media sentiment is significantly elevated during weekdays.